Wednesday, December 7, 2016

Over 250K invested

Just logged into my account and noticed that we hit another major financial milestone: our investments have now surpassed $250,000 in value!  It has been a steady journey for us, with simple and consistent investment contributions. 

What’s the point of living a simple lifestyle to save and invest more?  Freedom.  I’ve been wealthy and I’ve been poor, and I choose to never be poor again.  We know what it’s like to live with the dissatisfaction and stress of living paycheck to paycheck.  By not focusing on material things, and focusing instead on happiness and enriching experiences, our quality of life has improved drastically.  Investing helps us make money work for us.  We work hard and invest as much as possible so that we don't have to work forever.
My family motivates me to succeed.
Our largest investment accounts have been with our 401Ks.  With every paycheck, our contributions get automatically deducted and invested.  When the market is down, we purchase extra shares, and when the market is up, we purchase less shares.  There is no need to think about what to contribute because it is all done automatically.  Investing in a 401K allows us to put in pre-tax dollars; so more money is deposited with each contribution. This also lowers our income tax bill by a significant amount.  (Our dependent care FSA also lowers our tax bill by $5,000 each year).    

Our other investments include money with Vanguard in our Roth IRAs, taxable accounts, and now our son’s 529 college fund.  We don’t consider our home as an investment so our home equity is not included.  The last big financial milestone for us was when our investments surpassed $100,000 in value in June 2014. 

Our investments are simple, mostly in the Boglehead 3-fund portfolio.  This portfolio includes a piece of over 3,600 US stocks (Apple, JP Morgan Chase, Google, Chevron), over 5,500 international stocks (Nestle, Toyota, HSBC), and over 6,300 individual US bonds.   

I recently opened a very small position (less than 6% total investments) in VHCIX, Vanguard’s Health Care fund.  VHCIX invests in stocks of companies involved with providing health care products, services, technology, and medical equipment.  This fund normally has a minimum investment of $100,000!  Luckily, I can access this fund through my work 401K, and I contribute 10% of my 401K investments into VHCIX.  I believe in health care as an industry and this helps me support it.

The US stock market is currently in record highs.  However, international stock markets haven’t performed well lately and the US bond market has recently dropped quite a bit.  Our 3-fund portfolio allows us to stay diversified.  We have been rebalancing by investing more in international and bond funds lately.   

It has taken a while for our investments to reach a quarter million.  While we are proud of what we have accomplished, we still have a long way to go before we reach financial freedom.  I’m not trying to brag or show off; I feel like we have a lot of catching up to do with our investments compared to other people our age.  We started investing around the end of 2011.  If we had begun our journey towards financial freedom back when we both started working, I have no doubt that we would have 500K in our investment balance by now.  I'll post an update when we hit 500K.

If you are just getting started with investments, realize that while the best time to have started investing was when you first started making money, the second best time is right now.  I recommend first contributing to your company 401K enough to get the company match.  Then aim to max out your IRA contribution.  Afterwards, I would focus on increasing your 401K contributions until you max it out.  If you do not have access to a 401K, I would look into opening a taxable account.  While investments into a taxable account don’t offer any tax benefits initially, long term capital gains tax are only 15%.  Taxable investments are extremely liquid and you can access them anytime.  Should the stock market do poorly, you can tax loss harvest.  You can’t do this with retirement accounts in your IRA or 401K.   

For more reading about investing in mutual funds, I wrote a brief series of investment articles beginning here.  For even more in-depth and excellent reading on stock market index fund investing, read the Stock Series by JLCollinsNH.  

What are you doing to work towards your financial freedom?

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